VC Glossary Index VC Glossary .⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄..⁄..3
Total Page:16
File Type:pdf, Size:1020Kb
VC Glossary Index VC Glossary .⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄..⁄..3 Basic Processes ..⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄..⁄⁄.4 Business Actors ..⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄5 Documents and Statements ⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄.7 Funding Subcategories ⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄..8 Indicators and Criteria ⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄..10 Investor Types ⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄..⁄⁄⁄⁄.11 References⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄.⁄⁄.14 Credits⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄.⁄.17 VC Glossary The world of Venture Capital is often overwhelming at first sight, even more so when you do not have the primary knowledge. This guide will help you understand the basic context to start getting into this subject. In addition, there will be occasional videos that we believe will help you gain a greater understanding of the concepts listed. 3 Basic Processes First, for a company to raise capital, foundation rounds are necessary. The basic ones that need to be taken into account for these processes are the following. Acquisition: When one company purchases most or all of another company's shares to gain control of that company. Funding Anytime a company raises money from one or more Round: investors. TheyÊre given a letter, such as A Round, B Round, C Round, etc. because each round follows another. The letter identifies which number of rounds theyÊre on. A. Early-Stage Funds: These funds are generally from $2 million to $15 million in size and invest in seed stage and Series A companies but occasionally lead a Series B round. They are also referred to as Seed Rounds, as they help lay the foundation for a company. B. Mid-Stage Funds: These funds usually range from $30 million to $60 million. They generally invest in Series B and later rounds. C. Late-Stage Funds: Take place when the company is successful and self-lowered. It is typically done as the last financing before a prospective initial public offering (IPO), or taking part in Series C and the following. Recommended videos: Startup Funding Explained: Everything You Need to Know. Available here. How Does the Stock Market Work? Available here. 4 IPO: Process that offers shares of a private corporation to the public development ofin the a new business stock idea.issuance. With the objective of raising capital from public investors. Pre-Seed An early pre-institutional seed round that either has no Round: institutional investors or is a very low amount, often below $150k. Seed Round: The first Funding Round that a startup receives; it helps in the beginning for the development of the business idea. Business Actors Process In capital investments we usually only take into account, as part of the game, entrepreneurs and investors. However, there are more players you should know about. Board of They represent the shareholders and establish management Directors: They andrepresent supervision the shareholders policies for companies. and Every public establish managementcompany and must supervision have a board policies of directors. They are more for companies. Everycommon public in large company firms. must have a board of directors. They are more common in 5 large frms. CEO: It stands for Chief Executive Officer. Is the highest-ranking executive in a company, whose primary responsibilities include making major corporate decisions, managing the overall operations and resources of a company, acting as the main point of communication between the board of directors and corporate operations and being the public face of the company. A CEO is elected by the board and its shareholders. Entrepreneur/ The one who starts and operates a new business venture Founder: and absorbs much of the financial risk that comes from doing that. Is the starter, the driver and the responsible for his company destiny. Managing The most senior person in the frm. These VCs make the Director: final investment decisions and sit on the boards of directors of the companies they invest in. They are more common in small firms. The Mentor: The one who is willing to guide the businessman and give him advice so that he can make the best decisions. Many mentors end up being early angel investors in companies or get a small equity grant. 6 Documents and Statements Well, now that you know the actors in this play and the processes they carry out, it is time for you to learn the documents and organization that you will need to have in order to raise investments and manage your business. Capitalization A spreadsheet that defines and analyzes the economics table: of the deal. For example: the share percentages, capital value and dilution. Company's A financial statement that reports a company's assets, balance liabilities and shareholders' equity at a specific point in sheet: time, and provides a basis for computing rates of return and evaluating its capital structure. It is a financial statement that provides a snapshot of what a company owns, as well as the amount invested by shareholders. Proft and Loss A financial statement that summarizes the revenues, Statement: costs, and expenses incurred during a specified period, usually a fiscal quarter or year. These records provide information about a company's ability or inability to generate profit by increasing revenue, reducing costs, or both. Term sheet: A letter from a Venture Capitalist expressing interest in investing, along with the proposed terms. 7 Funding Subcategories There are a lot of funding types, here is a little guide to some of the most important ones. Convertible Is an Âin-betweenÊ round funding to help companies hold over Note: until they want to raise their next round of funding. When they raise the next round, this note ÂconvertsÊ with a discount at the price of the new round. Recommended video: PandoHouse Rock: Convertible Notes Explained. Available here. Corporate When a company, rather than a venture capital firm, makes an Round: investment in another company. Crowdfunding: A way of raising finance by asking a large number of people each for a small amount of money. Debt An alternative way for businesses to borrow money where the Crowdfunding: finance is raised via a crowdfunding or P2P lending website, and the funds are contributed by multiple investors. Debt When a firm raises money for working capital or capital Financing: expenditures by selling debt instruments to individuals and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise that the principal and interest on the debt will be repaid. 8 Equity Equity crowdfunding platforms allow individual users to Crowdfunding: invest in companies in exchange for equity. Typically on these platforms the investors invest small amounts of money, though syndicates are formed to allow an individual to take a lead on evaluating an investment. Equity Raising capital through the sale of shares. By selling shares, Financing: they sell ownership in their company in return for cash, like stock financing. Recommended video: Understanding Debt vs. Equity Financing with Bond Street. Available here. Grant: When a company, investor, or government agency provides capital to a company without taking an equity stake in the company. Non-Equity When a company or investor provides office space or Assistance: mentorship and does not get equity in return. Product In a product crowdfunding round, a company will provide its Crowdfunding: product, which is often still in development, in exchange for capital. This kind of round is also typically completed on a funding platform. Recommended video: Your Guide to Understanding Crowdfunding. Available here. Secondary Fundraising event in which one investor purchases shares of Market stock in a company from other, existing shareholders rather Transactions: than from the company directly. 9 Indicators and Criteria To know if our investment will be worthwhile, or if our business is on the right track, it is necessary to know some indicators and criteria that will help identify the strengths and weaknesses of a company CPI: The Consumer Price Index is a measure that examines the weighted average of prices of a basket of consumer goods and services. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Equity: Represents the amount of money that would be returned to a companyÊs shareholders if all of the assets were liquidated and all of the company's debt was paid off. Is one of the most common financial metrics employed by analysts to assess the financial health of a company. Recommended video: What Does Equity ACTUALLY Mean?. Available here GDP: The Gross Domestic Product is an estimate of the total value of all the goods and services it produced during a specific period, usually a quarter or a year. PPI: The Producer Price Index is a group of indexes that measures the average change over time in the selling prices received by domestic producers for their output. 10 ROA: Is an indicator of how profitable a company is relative to its total assets. ROA is calculated by dividing a companyÊs net income by total assets. A measure of financial performance as the return on net assets, ROE: which can be calculated by dividing net income by shareholders' equity. RSI: The Relative Strength Index is an indicator that measures the speed and change of price movements. The RSI oscillates between zero and 100. RSI is considered overbought when above 70 and oversold when below 30. Investor Types Finally, there is one of the most important pieces of this game, the investors. Among them there are several categories that you should know, to take into account the function and characteristics of each on. Accelerator: A program intended to mentor and accelerate the growth and success of a startup company. It takes a set amount of seed equity from a number of young startups in exchange for capital and mentorship. Recommended videos: Incubators Vs. Accelerators: What You Should Know. Available here. Insight #6 - 9 Differences Between Incubators and Accelerators. Available here 11 Investor: It's a high net worth individual that provides financial support (typically a one-time investment) for startups or entrepreneurs, in exchange for ownership equity.